The energy industry is in deep distress, searching for a solution to a nationwide gas shortage.
Opinion by Mike Fuge
CEO of Contact Energy
New Zealand’s energy transition isn’t lacking for ambition or action. We know we’ve got the right recipe; we’re just missing a vital fresh ingredient. Urgency.
There’s been no shortage of noise over the past six months about August’s volatility of the electricity market when a combination of limited gas supplyand lack of water led to high spot market prices.
But what gets lost in the hyperbole is recognition of the huge strides taken to deliver a workable transition, and the billions of capital funding it.
New Zealand’s renewable electricity generation reached a record high of 88.1% as recently as 2023. This reduction in our dependency on gas and coal is an achievement we should stand proudly behind – and continue to build on.
Even so, to ensure continuity of supply, fossil fuels will remain an important backstop measure for the next 20 years. This is core to the transition to make sure we keep the lights on in times of low rainfall, as we have done successfully now for decades.
Our best path forward involves finding new ways to maximise the efficiency of existing generation assets, while accelerating investment in more renewables – and getting these projects consented and built.
Contact Energy’s 174MW geothermal power station at Tauhara will provide 3.5% of the country’s electricity - enough to power about 200,000 Kiwi homes.
We are working on this challenge on multiple fronts. Our proposed merger with Manawa Energy stands to boost the efficiency of our combined hydro assets, allowing us to supply more electricity to the market in long-term contracts – giving more certainty to major electricity users and independent retailers.
At the same time, we will be able to accelerate investment plans using Contact’s strong balance sheet to give the Government majority-owned gentailers, which control 65% of the generation market, a run for their money.
In the past four years alone, we’ve invested more than $2.3 billion delivering new renewable generation, which combined with our new pipeline reflects the scale of our commitment.
But we aren’t seeing that same commitment or pace reflected in our regulatory and consenting frameworks. The debilitating weight of bureaucracy is helping no one.
Delays harm our fight against climate change. They also impact the economy, and the ability to keep – and lure – the skilled workforce we need in New Zealand to build infrastructure of national significance.
The fact one consent, in particular, has taken longer than construction itself raises doubt about how serious we are about securing our energy future.
But as the new year dawns, promised RMA reform brings hope. As a country, we have a great set of hydro assets that aren’t being maximised because of resource consents signed two decades ago. The world is different now. We should be urgently reviewing the conditions governing the operating ranges of hydro dams to enable greater use of these renewable assets over gas and coal.
Contact CEO Mike Fuge speaks at the opening of the company's Tauhara geothermal power station. Photo / Dan Hutchinson
Maximising existing hydro generation is pragmatic, cheap and emissions-free. We can just get on and do it.
The urgency of climate change requires all of us to do our bit to lower emissions. Since 2008, we have closed the New Plymouth, Ōtāhuhu and Te Rapa gas-fired power stations, and replaced them with renewable, mostly geothermal power stations near Taupō at Tauhara and Te Huka 3 – the equivalent of powering 260,000 homes worth of new generation in 2024 alone.
We’ve begun construction on Te Mihi Stage 2, our phased replacement of the 1950s-built Wairākei power station. We have started our first large-scale battery energy storage system at Glenbrook-Ohurua so we can store excess electricity for the periods when it’s most needed and work has begun on the 230ha Kōwhai Park solar farm in Christchurch, with Lightsource bp.
These huge investments are building resilience in our electricity supply for homes and businesses, supporting our national climate targets and stimulating economic activity and skilled employment through a challenging economic cycle.
Since 2012, Contact’s annual carbon emissions have dropped from more than 2.4 million tonnes to 948,000 last year. We expect our generation portfolio (during a normal year of rainfall) to be more than 95% renewable by 2027, putting our company on track to achieve net-zero generation by 2035.
Demand for electricity is set to explode as our everyday lives become increasingly electrified, but the scale of this transition is not going to come cheap. When combined with transmission and lines network upgrade costs, as a country we are looking at investing north of $40 billion over the next 10 years – roughly $20,000 per household in today’s dollars.
We have four major electricity generators in New Zealand. It is right that New Zealanders look to us to be leaders in the energy transition investment in the most efficient way possible, while competing vigorously on price and innovation.
As a proud independent energy company, this is a challenge and an opportunity we are committed to leading. Households are responding positively to our “Good Plans” and “Hot Water Sorter” campaigns, saving money and decreasing peak-hour demand.
What we do from here requires a collective effort for the good of our country. We’re on a good path, our recipe for success just needs a good dollop of urgency. And pragmatism.
